Short Answer
If refinancing proceeds may be used to repay a shareholder, parent company or another group company, the borrower should be able to show what the original debt was, who advanced the money, what it was used for, how the funds moved and what remains outstanding.
Calling an amount a “shareholder loan” or “related-party debt” is not enough. The refinancing lender may accept repayment of that debt only after it understands the underlying transaction and confirms that the repayment fits the permitted use of the new facility.
Why This Matters
Related-party balances often build up over years.
A shareholder may have funded acquisition costs, renovation, working capital, payroll, equipment or payments to third-party suppliers. Later, when the business refinances, those different advances may appear in the accounts as one intercompany balance.
That accounting label does not necessarily tell the lender whether the debt is genuine, who the creditor is, what the money funded or whether the new facility may be used to repay it.
The issue can therefore affect both loan approval and drawdown.
Typical Scenario
A group seeks a new bank facility.
Part of the facility will repay external debt, while another part is intended to repay historical shareholder or affiliate funding. The accounts show the balance, but the bank asks for the original lender, purpose, money trail and supporting documents.
Management asks:
“Is the balance sheet enough?”
Usually, no.
Practical Analysis
01Start with the legal debt, not the accounting label.
For each material balance, identify creditor, borrower, date, original amount, interest if any, purpose, repayments, current balance and any security or subordination terms.
Thai law also contains a written-evidence rule for money loans above THB 2,000. For a commercial refinancing, however, the evidence standard expected by a lender will usually be much higher than that minimum litigation rule.
02Reconstruct the fund flow.
Show how the money actually moved.
Examples include:
shareholder account → borrower account → project expenditure
or
shareholder account → supplier → debt recorded as owed by borrower
Those are different factual patterns. Supporting evidence may include loan agreements, board approvals, bank statements, invoices, ledgers, audited accounts and debt confirmations.
03Match the historic purpose to the new facility.
A lender may approve refinancing only for specified purposes. The fact that a debt appears in the accounts does not mean it is automatically an approved use of proceeds.
Two questions therefore need separate answers:
Is the related-party debt genuine and supportable?
Is repayment of that debt permitted under the new facility?
04Do not reconstruct a cleaner history than the evidence supports.
If documentation is incomplete, later confirmations can record the present position but should not falsely imply that agreements or transfers occurred earlier than they did.
05Reconcile before closing.
The legal documents, bank evidence, accounting records and repayment instructions should identify the same creditor and amount.
Where several affiliates have funded the project over time, the borrower should also check whether any balances have been assigned, netted, capitalised or informally reclassified. The creditor shown in the current ledger may not be the entity that originally advanced the money. That history should be reconciled before repayment instructions are issued so the refinancing does not pay the wrong entity or misdescribe the underlying debt.
What We Usually Look At
We review original loan documents, shareholder and board approvals, bank statements, invoices, accounting ledgers, audited financial statements, repayment history, tax treatment, debt assignments if any, and the new lender’s use-of-proceeds conditions.
Common Traps
Typical mistakes are using “shareholder loan” as a catch-all label, relying only on the latest accounts, assuming every intercompany balance qualifies for refinancing, changing the creditor without documenting the legal mechanism and backdating documents to fit the desired financing story.
Practical Next Step
Prepare one evidence schedule:
creditor → amount advanced → date → purpose → bank evidence → use of funds → repayments → current balance → refinancing eligibility
That gives the borrower, lender, finance team and lawyers one factual record to test before signing.
Legal Sources
- Thai Civil and Commercial Code, section 653 on written evidence for loans of money.
- Thai Civil and Commercial Code, sections 303 and 306 on assignment of claims, and sections 349–350 on novation and change of debtor, where the creditor or debt position has changed.
- Accounting Act B.E. 2543 (2000) and Department of Business Development guidance on accounting records and supporting accounting documents.
General legal information only. Please seek advice on your specific facts. Laws and regulatory practice may change.